SHIFTING FROM TECHNOLOGIST TO BUSINESSMAN

 By Bruce Woodry

How many times have we heard the old saw "invent a better mouse trap and the world will beat a path to your door."  A good product alone is no guarantee of success; the entrepreneur must also take a no-nonsense approach to business.

The classic challenge is for the entrepreneurial start-up to build "critical mass" in their business before their competition, typically with substantial market presence and financial resources, duplicates or surpasses their product.  The start-up must create everything: a product, a company image, distribution channels, duplication processes, financial structuring, creditor relationships, administrative details to name a few.  Building a company is a complex process requiring sophisticated business skills that usually go beyond those the software technologist may possess.  Many stories circulate about companies that grow quickly, but the management experience and infrastructure cannot support it.  Start-ups are very complex enterprises that require the right balance of product, people and cash.  Securing the right skills quickly requires building a strong, capable business team.

Many small companies have not thought their business through thoroughly.  Most entrepreneurs are extremely knowledgeable of their products and technology, but have not examined how to structure their business to produce the products, get them to their customers, service them and keep customer satisfaction while maintaining positive cash flow and investor confidence.  The first step is an effective, no-nonsense business plan for establishing direction and objectives for the company.  Many plans have too many words and miss the point.  The leader must challenge the team to a tough quantification of the business that shapes the team's thinking to achieve no nonsense, bottom line results.

It is important to have accurate cashflow forecasting to avoid surprises.  Cashflow can be effectively managed manually at first, later on simple spreadsheets and, once the company has substantial size, on more sophisticated computer programs.  In addition to systems, the company must establish procedures, authorities and payment/collection criteria.  Proper discipline of the sales team in payment terms (collect early) decreases cashflow problems.  In most cases, payment terms are more important than sales price (margin).

     Many start-up CEO's report that recruiting and retaining the business and management expertise to build a world class team is their most critical challenge.  These fledgling corporations need the years of wisdom and business "shortcuts" that the senior executives possess.  Successful businessman have also experienced failure; they know how to avoid it and what steps to take to correct it.  Unfortunately, the technologist may never have hired a CFO or VP of Sales and Marketing, so they may shoot wide of the target.  We recently interviewed a candidate after a client had interviewed him four times and was about to hire him.  After a 30 minute conversation, we felt the candidate wasn't qualified.

Businesses run on cash.  Accelerating product development, revenue generation and sales terms for positive cash flow is critical to the success of the company.  Debt restructuring may be foreign concepts to a software developer.  What may seem like a tremendous cash reserve after funding is completed quickly evaporates as development is delayed, a sales team is built, market awareness takes longer than anticipated, and customers pay late.

Before seeking investors, explore any and every risk which may reduce the return on the investment or create the possibility of a terminal (chapter 11 or 7) operation.  For instance, if your plan calls for growth to $25M/year and 50 employees, do you have the people who have managed in periods of high growth?  A good businessman and management team know where potential pitfalls are and establish contingency plans to minimize the impact.  External and internal conditions constantly change and the management team must have the skill to address and adapt to the changes.